Packaging firm Macfarlane Group has said rising costs and a delay in passing them on to customers have hit its profit margins.

However the Glasgow company which employs 700 people at 22 locations - said there had been an upturn in business in the last five months and full year profits will be in line with expectations.

In August Macfarlane reported a 60 per cent rise in pre-tax profits for the first half of the year.

In its interim management statement the company reported a stronger trading performance since June which followed normal trends of a stronger second half.

In the packaging distribution division, sales are nine per cent ahead of 2009.

However following a series of price increases in the first half of the year, further rises have been implemented by suppliers and the delay in passing these increases on to customers has led to lower gross margins in the second half of 2010.

The group also stated it was committed to reducing its pensions deficit. It said while the recent rises in the equity markets had improved investment values in its final salary pension scheme, reductions in bond yields had offset most of this improvement.

Archie Hunter, chairman, said: "Whilst we remain cautious over future demand levels and the pass-through of supplier price increases remains a considerable challenge, we have taken actions necessary to manage the situation and the board believes that the results for 2010 remain broadly in line with its expectations."